(Assuming the rumor has weight to it)
Millions and millions of people have handheld devices (phones, tablets) that run at a resolution higher than 720p. It's pretty delusional to think 720p is a strong selling point for a high-powered mobile device in 2017. Think about who Nintendo's target audience is, and then think about whether or not the audience has been exposed to higher resolution screens!
Of course, there's more to a screen than just the resolution. The size matters, the panel matters, the power draw matters, the anti-glare matters, the touch matters, etc. With that in mind, while 720p is an outdated resolution, 720p might be the only choice they have for delivering a handheld that won't need to be recharged every 20 minutes. Can they communicate this reality in an effective way?
Baby steps won't work in today's portable market. People have expectations of high performance and forward-technology, and if you're coming out with a product that wouldn't look out of place 3 years ago then you should not expect people to do backflips when you announce the features of your product. The question now becomes what cool selling points the device has. The screen isn't it but the games might be it, the online might be it, the detachable controllers might be it, etc.
Good post.
Releasing a single-touch, 540p touchscreen would be laughable in 2017.